NSE, BSE shares drop amid declining trading volumes, regulatory concerns

Shares of Indian stock exchanges NSE and BSE slump this week amid regulatory scrutiny over high-frequency trading and concerns over declining trading turnover

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Shares of Indian stock exchanges – BSE and National Stock Exchange (NSE) – slumped this week as regulatory scrutiny on high-frequency traders sparked concerns over drop in turnover and eventually their profitability. 

 

Since the Securities and Exchange Board of India’s (Sebi’s) ban on US trading firm Jane Street on July 3 derivatives trading turnover has declined by a fifth. 

 

BSE Ltd shares fell nearly 16 per cent from July 3 levels following the ban on US-based proprietary trader Jane Street for alleged index options manipulation. The stock closed at ₹2,376 on Friday, down 3.7 per cent over its previous day's close, reducing its market capitalisation to ₹96,650 crore. 

 

Meanwhile, unlisted NSE shares dropped 13 per cent this week to ₹2,100 apiece, according to platforms that deal in unlisted shares.  

 

This has reduced NSE’s market value to ₹5.43 trillion. Its shares had previously rallied to ₹2,400 amid optimism over its initial public offering (IPO) as the bourse neared a settlement with regulators in a protracted legal case involving lapses at its colocation facility.  

 

“The sharp fall in NSE and BSE shares this week is a mix of short-term noise and shifting market dynamics. The change in the derivatives' expiry dates has unsettled traders a bit. At the same time, Sebi’s recent action against Jane Street has added to the caution. There is a concern that tighter rules have also raised fears that F&O turnover could shrink further,” said Trivesh D, chief operating officer at Tradejini. 

 

On the first expiry of Nifty weekly contracts since the ban on US-based high frequency trading firm,  the total turnover on the National Stock Exchange (NSE) dropped 21 per cent compared to the previous expiry day.

 

Index options turnover on a notional basis slipped to ₹472.5 trillion on Thursday, down from ₹601 trillion on July 3 — ahead of the ban on Jane Street.  

 

“The key unknown is whether this instance can lead to a knock-on impact on trading volumes, and we feel that trends over the next week on derivatives volumes will be key to watch, especially the index derivatives expiries on Tuesday and Thursday,” noted Jefferies.

 

The research firm added that proprietary traders and HFTs may see a manageable impact from the exit of Jane Street as manipulative factors potentially reduce. “Hedge funds largely operate with larger positions in Single Stock Futures  and their trading in options is limited,” added Jefferies, noting that the exit by Jane Street may have a limited impact on the earnings of BSE.